Understanding the CPI in Spain: The key to protecting your investment during inflationary times

Why do your savings lose value year after year? The answer lies in an indicator that determines your portfolio’s performance: the Consumer Price Index. Throughout 2022, millions of Spanish investors saw their gains evaporate as prices—ranging from food to energy—shot up uncontrollably. Understanding what the CPI in Spain is and how it affects your investments is more necessary than ever today.

What does the CPI really represent in Spain?

The Consumer Price Index is the thermometer that measures a country’s economic health. It is a statistical measure that periodically records how the prices of goods and services consumed by an average family vary. In Spain, the National Institute of Statistics is responsible for calculating this data monthly, analyzing a basket of 500 representative products ranging from food to transportation.

Many investors confuse this indicator with inflation, but the difference is important. While inflation is the widespread increase in prices across the economy, the CPI is the statistical tool that measures it. Therefore, central banks and analysts use the CPI as the main reference to understand whether inflation is under control or spiraling.

Factors driving CPI variation

There is no single cause for rising prices. The landscape is more complex. When production costs—labor, materials, energy—rise, they automatically transfer to the final price. But there’s more: aggregate demand plays a crucial role. If everyone wants to buy more (for example, housing), sellers raise prices and the CPI rises with them.

Changes in the exchange rate are also decisive. A weaker currency makes imports more expensive. Central bank policies impact it directly: when interest rates are lowered, spending increases and prices go up; when they are raised, the economy slows and the CPI decreases.

In 2022, one factor was decisive: the invasion of Ukraine disrupted energy supply from Russia, creating a gas shortage. This supply shock caused the CPI to hit record highs in June 2022 with an annual variation of 10.2%.

The trajectory of the CPI in Spain: 2021-2022 and projections

The year 2021 showed a progressive climb. The CPI started the year at 0.5% in January and closed at 6.5% in December, foreshadowing what was to come.

The year 2022 was the peak inflation year. March marked the turning point after the Ukrainian invasion with an annual variation of 9.8%. In June and July, it reached highs of 10.2% and 10.8%. However, successive interest rate hikes by the European Central Bank began to take effect. By December, the CPI fell to 5.7%, indicating that monetary restrictive measures were working.

Projections for 2023 point to a continuation of this downward trend. Analysts expect the index to keep decreasing as higher interest rate policies continue to cool demand.

How the CPI reshapes European markets

A high CPI is not an isolated phenomenon in Spain. The entire eurozone has experienced it. Belgium recorded 10.4%, Poland 16.6%, Italy 11.6%. This widespread inflation has devastated European stock indices. The German DAX fell 12.5% in 2022, the EUROSTOXX 50 lost 11.4%, and the Spanish Ibex 35 declined 6.07%.

The reason is structural: when inflation spikes and central banks aggressively raise interest rates, investors migrate toward safer, higher-yield assets like government bonds. Stocks become less attractive, causing extreme volatility and sustained declines.

Strategies for your portfolio in an inflationary context

When the CPI in Spain spikes, your wealth experiences silent erosion. But there are ways to protect yourself:

Multinational diversification: Don’t concentrate everything in Spanish assets. Investing in foreign stocks and bonds reduces the impact of domestic inflation.

Tangible assets: Real estate and commodities retain value when prices rise. Historically, real estate investment is a refuge during inflationary periods.

Inflation-linked fixed income: There are bonds that adjust their returns according to the CPI. They are effective tools in these circumstances.

Short-term bonds: Government bonds with shorter maturities offer stability and avoid long-term investment risks when uncertainty is at its peak.

The banking sector: Opportunity with caution

During inflation with high interest rates, banks seem to benefit. Their interest margins increase when they lend at higher rates. Bonds issued by financial institutions become more attractive to investors seeking yield.

But beware: in strained economies, families and businesses struggle to pay debts. Non-performing loans increase, squeezing bank profits. Additionally, banks must pay more for their deposits. It’s not a risk-free investment.

The summary you need to remember

The CPI in Spain is much more than a number. It’s the compass guiding investment decisions. A high CPI means your purchasing power diminishes, stock markets tend downward, and uncertainty reigns.

The solution is not to flee the market but to reposition. Diversify across countries and asset classes. Consider real assets that withstand inflation. Prioritize bonds over stocks in critical phases. And above all, never invest more than you can afford to lose. In times of high inflation, prudence is the best performance strategy.